The Canada Supplementary

Pension Plan

The Canada Supplementary

Pension Plan

Rotman School of ManagementJune 11, 2008

Rotman School of ManagementJune 11, 2008

CD Howe Institute CD Howe Institute

Theoretical Foundation of CSPP ProposalTheoretical Foundation of CSPP Proposal

Life-Cycle Theory of Consumption

Integrative Investment Theory

Life-Cycle Theory of ConsumptionLife-Cycle Theory of Consumption

-$80,000

-$60,000

-$40,000

-$20,000

$0

$20,000

$40,000

$60,000

$80,000

15 20 25 35 45 55 60 65 66 71 76 81

Earnings

Consumption

Saving

A Typical Life-Cycle Income/Consumption Pattern in Real Terms

Behavioural FinanceBehavioural Finance

Overconfident

Inconsistent

Hesitant

Irrational?

Integrative Investment TheoryIntegrative Investment Theory

F { A, G, IB, R, FE }

Client / Beneficiary Value

Institutional Design ImplicationsInstitutional Design Implications

Arms-Length

Well-Governed

Large-Scale

Canada’s Retirement Income System: DesignCanada’s Retirement Income System: Design

Pillar #2

CPP / QPP

Pillar #1

OAS / GIS

Pillar #3

RPPs +

RRSPs

Canada’s Retirement Income System: The NumbersCanada’s Retirement Income System: The Numbers

Workforce 15.0 million

• without RPPs 9.5 million

• without RPPs, earning over $30K/year

4.5 million

• without RPPs, earning over $30K/year, without adequate retirement savings

3.5 million

Canada’s Retirement Income System: The Numbers (cont’d)Canada’s Retirement Income System: The Numbers (cont’d)

Households 13.5 million• with RRSPs and no RPPs 8.0 million• with RRSPs in mutual funds 5.5 million

Invested in mutual funds (est)

$400 billion

The Canada Supplementary Pension Plan (CSPP)The Canada Supplementary Pension Plan (CSPP)

Automatic enrolment of all non RPP-covered workers into the CSPP

Use CPP/QPP payroll deduction mechanism Operate within the existing tax and

regulatory regime for pensions Target a 60 percent post-work earning

replacement rate Set earnings floor and ceiling for CSPP

deductions Set automatic default CSPP contribution rate

The Canada Supplementary Pension Plan (CSPP)The Canada Supplementary Pension Plan (CSPP)

Provide an opt-out option Provide an opt-in option Provide an RRSP assets transfer option CSPP operates at arms-length from

government CSPP operates as an expert, high-

performance financial institution CSPP offers a number of annuitization

options A ‘paternalistic libertarian’ philosophy

Other Times and Other PlacesOther Times and Other Places

Ontario Committee on Portable Pensions (1961)

Northern Europe and Australia

TIAA-CREF and the Saskatchewan CSSPP

UK Pensions Act (2007)

An Action AgendaAn Action Agenda

The ‘target’ 3.5 million workers

Organizations representing employees and employers

Members of Parliament and Provincial Legislatures and their officials